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Are the principles of stability and trust still valid in a modern recessionary market? Mike Platt argues they are essential for the long term good of the industry
Maybe I am naïve in thinking anyone trusted anyone in the corporate travel market in the first place but I don't think so. Once all the hard bargaining has been done and the parameters and delivery goals have been set, then at least an element of trust must prevail. Sadly, I am beginning to fear that trust is now going out the window along with continuity and loyalty.
I see the beginning of some kind of cost cutting, relationship breaking ‘feeding frenzy' beginning to surface. It goes like this "Omigod, we are in trouble, reduce cost, break deals, cut our prices, man the lifeboats, kill, kill, kill." Well not literally of course but certainly in business practises. Everything that was so painstakingly developed in the past suddenly becomes expendable and the only way forward is not only to break down your infrastructure but make sure everyone, particularly your shareholders, know you are doing it. Smart eh?!
Take some airlines for example. As I am sure you have seen, the main US carriers are queuing up to question the value (to them) of intermediaries and seriously saying that they should charge them for the pleasure of giving them customers . Unbelievably they seem serious about it. They forget or ignore the irrefutable facts that this channel gives them higher revenue and a better customer experience. They also choose to forget that they do not themselves have the resource, technology, expertise or impartiality to provide an end to end travel service themselves; they simply want to shift the cost somewhere else.
The ‘somewhere else' is the corporation which is already footing most of the bill for airline marketing and distribution costs. The thing is the corporate is not foolish. They have seen it coming and, like with commission, they are prepared to let this come as it further commoditises the airline product and allows them to negotiate even harder. Post commission, basic fares went down, then right up, and then down again to a much lower yield than where they started from. Airlines used to be terrified of commoditisation but now they seem to be hastening its supremacy.
The TMCs also see this coming. At the time of commission cuts, they changed their entire model to management fees. Corporations then hit back by driving in transaction fees. TMCs hit back again by introducing menu pricing and add ons. And so it goes with the airlines changing the status quo, TMCs adapting and corporations negotiating back all they had lost. The loser is the airline as their margins demonstrate, yet here they go again attacking the TMC "comfort buffer" between them and their savvy customers.
However the airlines still have one trump card although they do not use it very well and that is their total control over the way TMCs book their flights. TMCs may work for corporates but they are compelled to operate to the airlines' rule book. This rule book is a flame proof Catch 22 document created in the early mists of time by their industry body, IATA (the International Air Transport Association). For example they can, like many are doing now, unilaterally halve their TMC credit periods which will have a direct impact on the customer, which, no doubt, will eventually go full circle back to the negotiating table.
Fortunately there are some areas in the supply chain where there is a positive movement towards trust and clarity. Yesterday there was a meeting between the UK and Ireland Institute of Travel and Meetings (ITM) and the UK Guild of Travel Management Companies (GTMC). This meeting was to release the results of a joint working group study into the facts about TMC remuneration. This demonstrated a brave leap of faith from both organisations and demystified a lot of issues. I recommend it as essential reading for corporations, TMCs and suppliers. Interestingly, from what I can see, it did not expose any huge skeletons in the cupboard and also supported the current trading methods between these two parties. What it has done is demonstrated that by working together, clarity and trust can prevail.
In my heading I used the word stability as a value I would urge to see retained. By stability I mean let us not immediately discard all the systems, partnerships and methodologies we have all built over the years in any knee jerk sort of way. They will be easy to dismantle and extremely difficult and time consuming to reassemble. As I said before they were put together for good reasons which still exist today. Go ahead and modify them but don't break them until you have something robust and tried to replace them with.
To conclude, my message is that trust and stability are essential for the long term health of our great industry. If you lose these values you end up with the law of the jungle where people get stung, bitten and sometimes eaten. Everybody has to respond to a recession but don't take out the costs that deliver on value otherwise you will be even worse off. And before anyone might say it, yes, I am an ex-TMC man but not any more and no I have not got my head in the sand. I am just someone who has no more personal axes to grind but simply wants to provide a ‘different' perspective on this critical issue.